When selling a company, of course the numbers are important. You want to obtain the most value in a sale and it can be easy to get caught up in revenue potential and expansion goals. But if you are truly concerned about the completion of a deal and the long-term success of the business, cultural fit between the converging companies is something that should never be underestimated or overlooked.
M&A Culture Shock
The culture affects everyone in the company, from the CEO and management down to every last employee. Values matter, communication is critical, morale is extremely influential when it comes to productivity, and these topics become even more important in cross-border transactions. Synergy in this respect can directly impact the bottom line of the business. Culture clash can utterly shatter the prospects of the merger or acquisition’s success.Research shows that complementary competencies contribute significantly to the enhanced overall M&A performance.This is why cultural integration must be considered before a deal is done, and why many savvy acquirers have formulas in place to address the fusion of two organizations’ cultures.
What Defines Company Culture?
The culture of a company is typically outlined by certain key factors:
- How the company defines essential capabilities and competitive strategies
- The normal behaviors of leadership and staff members
- The business’s operating model including structure, accountability, supervisory systems, and day-to-day operation guidelines
- National and regional customs, observances, language barriers, dress codes, work ethics and ideologies
Talent Retention is Key
Talent is a major factor in the acquisition of a company, as is the retention of that talent. Cultural fit has proven to be a critical factor in the retaining key talent after a sale due to issues related to autonomy and disruption—all things that should be negotiated upon a transaction. Research demonstrates that giving decision-making autonomy to the acquired business can improve integration and overall acquisition performance. Routines, relationships, and processes that are already embedded in a target company’s culture need to be understood by a buyer to avoid potential disruptions and ensure performance that is conducive to success. This can be especially important in the acquisition of high-tech companies.
Studies have indicated that if national and corporate cultural differences are not properly addressed during pre- and post-acquisition integration, it can have disastrous consequences on the overall success of the M&A transaction.
How Cultural Differences Can Actually Help
Cultural differences in cross-border transactions are not always a bad thing. It has been demonstrated that these differences can actually enhance the competitive advantage of the combined firms when cultural integration is properly handled. These benefits include:
- Access to distinct and valuable capabilities that may be rooted in the different cultural environment
- Development of deeper knowledge structures
- Lessened inactivity within the organization
- Excellent source of learning, innovation and value creation
- Greater manager involvement in social and cultural factors that are sometimes overlooked in domestic M&As
“Cultural learning” can change negative stereotypes, create positive attitudes, and improve communication between the two companies. For this process to work, there should be a controlled dispersion of information between parties that enables them to obtain accurate information about each other in a constructive way. This eliminates misconceptions and shines a light on actual differences that can be seen as the best aspects of both cultures.
Culture & the Due Diligence Process
Due diligence is crucial to every M&A deal, and this includes assessment of the cultural factors that may have impacts on the transaction and its success. Some questions to consider include:
- Does the target company have the right talent to carry out the acquisition strategy?
- Which team members are essential to continued value?
- What are potential deficiencies within management that can hinder long-term success?
- What is the overall cultural compatibility between the two organizations?
Cultural differences that can be deal killers need to be identified as early in the process as possible, keeping in mind that cultural differences can, in some cases, be beneficial. In any case, cultural differences should never be disregarded. Because they are so important to the success of a deal, they must always be evaluated and effectively managed.
Ready to Sell?
If you feel the time has come to sell your company, start the process off right by reaching out to the M&A experts at Benchmark International. Not only will we help you craft a winning exit strategy and use our global connections and proprietary methodologies to find the very best match for an acquirer of your business, but we can also ensure that you achieve cultural synergy before a sale. As a global company, we understand the importance of culture and know exactly what to look for in the alignment of two organizations.
Americas: Sam Smoot at +1 (813) 898 2350 / Smoot@Benchmark.com
Europe: Michael Lawrie at +44 (0) 161 359 4400 / Enquiries@BenchmarkIntl.com
Africa: Anthony McCardle at +2721 300 2055 / McCardle@Benchmarkintl.com
ABOUT BENCHMARK INTERNATIONAL:
Benchmark International’s global offices provide business owners in the middle market and lower middle market with creative, value-maximizing solutions for growing and exiting their businesses. To date, Benchmark International has handled engagements in excess of $6B across various industries worldwide. With decades of global M&A experience, Benchmark International’s deal teams, working from 12 offices across the world, have assisted hundreds of owners with achieving their personal objectives and ensuring the continued growth of their businesses.